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Growthpoint invests almost R1bn more Down Under

Takes up full rights in acquisition of Bank of Queensland headquarters.

Growthpoint Properties – Africa’s largest primary listed real estate investment trust (Reit) – is pumping more money Down Under, with the group announcing a R908 million investment into Growthpoint Properties Australia (ASX code GOZ) on Wednesday.

The move pushes its offshore exposure closer to its target of 30% as it looks to boost growth and offset poor economic conditions locally.

JSE-listed Growthpoint said it is following its full rights in the funding call from ASX-listed GOZ for the acquisition of the Bank of Queensland headquarters in Brisbane. Growthpoint has a 66% shareholding in GOZ.

The 24 665m² A-grade office building is fully occupied with a weighted average lease expiry of 7.5 years and a weighted average rent review of 3.9% a year. Completed in 2014, it is a certified green building with strong energy efficiency credentials.

“GOZ will partially fund the AU$250 million acquisition, which has an initial yield of 6.1%, through an equity raising of up to some AU$135 million. Growthpoint has confirmed that it will be taking up its full entitlement of around AU$89 million, or R908 million,” it said in a statement.

‘Excellent covenants’

“The accretive acquisition is a coup for GOZ in light of the wall of international money competing for direct property assets in the Australian market right now,” says Growthpoint group CEO Norbert Sasse. “This deal is remarkable because it adds an extremely high-quality modern asset with excellent covenants in a prime market to the Australian portfolio.”

He adds that the growth of Growthpoint’s offshore holdings is a key driver for the group. “Australia remains an attractive market for us relative to South Africa and supporting GOZ’s major acquisition further diversifies Growthpoint offshore.”

Growthpoint said it intends to issue a R1 billion bond on the local debt capital markets which it will use, in the main, to finance the transaction. The group first invested in GOZ in 2009, when the Australian listed property sector bottomed-out after the financial crisis. GOZ’s market capitalisation has since grown 50-fold, from AU$50 million to some AU$2.5 billion, with the support of Growthpoint.

Sasse says GOZ is expected to perform well and make a good contribution to Growthpoint’s distribution to shareholders this financial year. “GOZ has given growth guidance of AU$23.0 cents per share for FY19. Also, Growthpoint has taken advantage of the weaker rand in recent months to ensure its distributions are well-hedged. The contribution that GOZ makes to Growthpoint’s distributions has now been rebased to include maximum withholding tax.” 

Growthpoint, which is now punting itself as a leading international property company, already has assets on three continents. It owns and manages a diversified portfolio of 512 property assets, including 454 properties in South Africa, a 50% interest in the properties at V&A Waterfront, and 57 properties in Australia through GOZ. It also has a 29% share in London Stock Exchange alternative investment market (AIM) listed Globalworth Investment Holdings, and  a 21% holding in Warsaw-listed Globalworth Poland Real Estate, which owns properties across Romania and Poland.

Read: Growthpoint’s international assets deliver as SA economy stalls

Another South African Reit, Emira Property Fund, owns about 4.5% of GOZ, worth approximately R956 million. Emira CEO Geoff Jennett told Moneyweb on Tuesday that it decided not to partake in the capital raise by GOZ to acquire the Brisbane office building.

He says that while Emira plans to retain its current stake in GOZ, its offshore focus is currently on the US. Emira announced its latest investment into the US two week ago, when it secured an equity stake in a ‘power retail centre’ in Florida. This brings its investments in the US to five value-orientated power centre assets valued at US$45 million.

Garreth Elston, a portfolio manager at Reitway Global, says given the issues with the SA property market, it made sense for Growthpoint to follow its rights regarding GOZ’s latest acquisition.

“Australia will likely continue to outperform the SA market going forward,” he explains. “That being said, Australia’s property market is currently in a very mature part of the cycle, and the market has seen steady cap rate compression, and slowing growth in the property market. The Reserve Bank of Australia recently decided to leave the interest rate unchanged at a 1.5% low for the 28th month, and Australia has not raised rates since 2010.”

Read: The JSE’s most popular stocks

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Hope they do not fail like so many other SA companies in OZ , especially Investec who were into mezzanine financing of properties on Brisbane riverside

Capital flows to where it is welcome, where the ease of doing business is greatest and where returns that can beat the cost of capital are realistically achievable. Now here’s R1bn that could’ve and should’ve been invested in South Africa but …

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